The Internal Revenue Service has opened a 90-day public comment period, ending March 22, for proposed updates to its Voluntary Disclosure Practice, including a more streamlined penalty framework.
Under the proposed framework, taxpayers who are conditionally approved to participate in the program must, within three months:
- File amended or delinquent income tax returns, international information returns and Reports of Foreign Bank and Financial Accounts (FBARs);
- Pay all taxes, penalties and interest in full; and,
- Execute the required agreements to finalize participation.
The disclosure period will generally cover the most recent six years for delinquent and amended returns. Taxpayers who comply with these requirements will not be recommended for criminal prosecution.
The proposed penalty structure is intended to be "clear, predictable and consistent" across all disclosures:
- For delinquent returns, failure-to-file penalties would apply for each year in the disclosure period; failure-to-pay penalties do not apply.
- For amended returns, a 20% accuracy-related penalty would apply for each year in the disclosure period.
- For delinquent or amended FBARs, penalties would apply per year and would be subject to annual inflation adjustments.
- For delinquent or amended international information returns, penalties of up to $10,000 per return, per year would apply.
Under the proposed updates, taxpayers would e-submit Form 14457, "Voluntary Disclosure Practice Preclearance Request and Application." They would need to identify all years of noncompliance and provide a full and accurate description of their willful noncompliance.
Once precleared, taxpayers would receive a conditional approval letter. They would have to make full payment within three months of their conditional approval.
They would also have to:
- Submit a signed closing agreement waiving statutes of limitations;
- Agree to accuracy-related penalties; and,
- Sign an FBAR agreement, if applicable.
The IRS may rescind the taxpayer's conditional approval for failure to comply with VDP terms, and noncompliant taxpayers could be subject to full examination and all applicable civil and criminal penalties.
The IRS is inviting public comments on the proposed updates by March 22. Comments can be sent by email to
If finalized, the revised procedures are expected to take effect six months after publication of the final terms.
